Welcome to the second edition of Mishcon de Reya's Charity Newsletter. The Newsletter includes updates from across the firm on recent cases, legal developments and other news relevant to the voluntary sector.
The use of social media for charities is particularly topical this month, with the return of Social Media Week to London from 24 to 28 September 2012. This Newsletter includes an article on Controlling the Risks of Social Media for charities by Emma Woollcott from Mishcon Private. Emma will also be speaking at our Mishcon Charitable Forum event on 11 October where she will look at this subject in greater depth.
Elsewhere this Newsletter includes a case report on Charities Relief on stamp duty where there are joint purchasers and, from our philanthropy team, an analysis of recent statistics regarding charitable giving by women.
If you would like more detailed information on the issues covered in this Newsletter or any other matters relating to the sector, please do not hesitate to contact me.
Rise in probate disputes
Ministry of Justice statistics released this summer show that probate litigation is on the increase. The Court and Sentencing figures provide a detailed breakdown of the types of litigation fought in the High Court Chancery Division over the five years from 2006 to 2011. These show that the overall number of trust, wills and probate disputes reaching Court more than doubled from 2006 to 2011 (from 210 to 663). Year on year the number of cases increased from 556 in 2010. This trend is unusual in the current climate, and litigation in other areas decreased.
The breakdown of these figures showed that specific charity proceedings issued in the High Court remained stable throughout the period. Contentious probate actions including disputed wills and estoppel claims, many of which are likely to have involved charity parties, nearly doubled in number in the last 5 years (from 73 disputes brought in the Chancery Division in 2006, to 135 in 2011).
It seems likely that this trend is set to continue. Relatives may feel compelled to litigate over family property in times of economic hardship, where there have been substantial care home fees and as family structures become increasingly complex. Legacies may also become more and more important to charities if lifetime giving and government funding is reduced. Charities should be prepared. Risk can be minimised by encouraging major donors to have a professionally drafted Will drawn up and to talk to their families about their wishes.
For more information, please contact Tamasin Perkins.
Case summary – Scarfe and another v Matthews and others
This 2012 High Court case dealt with the £40m estate of "Turkey Tycoon" Bernard Matthews.
Under a French Will Mr Matthews left his £12 million Saint Tropez villa to Odile, his mistress. However, under the French rules of forced heirship, Mr Matthews' children were automatically entitled to 75% of the villa, regardless of the terms of their father's Will. The tycoon wrote a letter of wishes to his family asking his children not to exercise their rights and to respect his bequest to Odile. George, Mr Matthews' biological son, who inherited £30m from his father, respected Mr Matthews' wishes. Mr Matthews' three adopted children, however, were not provided for in their father's Will and chose to claim their automatic French law entitlement. The effect of the children's decisions was that Odile received 43.75% of the villa (a 25% share under the Will and George's share) and the remaining three children a 56.25% interest.
The case reached the High Court over the tax liability for the villa. The Will provided that Mr Matthews' executors should pay all tax arising in consequence of Mr Matthews' death, including French taxes. The children's case was that the doctrine of election did not apply and if it did, the money due for tax should fall into the residue inherited by George.
The High Court ordered that the children would retain their share of property under French law but that the inheritance tax must be paid by the adopted children and could not be paid from their late father's English estate.
For more information, please contact Tamasin Perkins or Sarah Infante.
Women give 89% more to charity than men
Baby boom generation women and older donate significantly more to charity than men of the same generation, according to research recently undertaken in the US.
The Women's Philanthropy Institute at the Center on Philanthropy at Indiana University has produced a report entitled "Women Give 2012". It has found that those born in the post-WW2 baby boom (born between 1946 and 1964) give more to charity than men of the same age. The study found this was the case even when levels of education and income and other factors which might affect giving were the same between the women and men.
At all income levels, and regardless of the share of their permanent income that they give, the research found that women of baby boom age and older gave 89% more to charity than their male counterparts. Further, in the top 25% income bracket, baby boomer and older women gave 156% more than men of the same age and in the same position.
The report also found that women are more likely to give: 19% of women gave more than 3% of their permanent income to charity, compared to only 11% of their male counterparts.
The research uses data from 2003 to 2007. It has studied only households headed by single females and single males to explain gender differences in giving. The Institute explains in its research report that married couples tend to pool income and make joint decisions about giving to charity and so studying married couples does not allow for testing of gender differences in giving.
The full report can be found here.
For more information please contact Andrew Goldstone.
Sick days and holidays
The European Court of Justice has recently ruled that employees who fall sick whilst on holiday should be entitled to reschedule the leave that they lose as a result of the sickness.
This decision is not surprising, given that an earlier case had held that an employee who fell sick shortly before going on holiday should be entitled to reschedule the holiday. However, the new decision provides an increased level of certainty for employers in relation to the position during (as opposed to before) an employee's holiday.
So what should employers consider when faced with an employee who complains that their holiday was ruined by illness?
- The ECJ ruling referred to statutory holiday leave. It is not yet clear what position the courts will take in relation to enhanced contractual holiday leave. An employer may therefore wish to specify that employees who fall sick on holiday will be deemed to have fallen sick during their contractual holiday entitlement. However, this could be a risky approach.
- More practically, an employer could insist on the employee abroad complying with the business's normal sickness absence reporting procedure if they wish to (and would normally be entitled to) take paid sick leave. In other words, they should call their manager from their holiday and report that they are not able to attend the beach that day, as they are suffering from a heavy cold. If the employee fails to do so, the employee would be technically absent without authorisation on that day, and they would not be entitled to any company sick pay. They would also not be entitled to holiday pay. As such, they would essentially be on unpaid leave. However, they would still be entitled to take the holiday at a later date.
- An employer could also include in their sickness absence policy that an employee seeking to claim holiday in lieu when they have been ill while away should be ready to prove their absence to the employer's satisfaction. While this could lead to claims of a breach of trust and confidence, particularly if the policy is not applied consistently and fairly, the employer could essentially require the employee to produce a doctor's note, even if they have not been sick for more than seven days.
For more information, please contact Laura Garner.
To ERR is human…
The Government has now published the Enterprise and Regulatory Reform Bill ("ERR"), which contains a number of provisions of relevance to employers and employees. It seeks to make it easier for employers to grow the economy, by reducing the amount of red tape they face in relation to employment law.
The ERR proposes:
- a period of early conciliation with ACAS, which must take place before a claim is lodged in the Employment Tribunal;
- a cap on unfair dismissal awards of between one and three years' median earnings (so around £26,000 - £78,000) depending on the employer, or one year's earnings;
- a fine for employers of up to £5,000 in certain circumstances;
- a restriction on whistleblowing cases, so that only those who have made a disclosure in the public interest (rather than merely in their own personal interest) will be protected;
- that claimants will not be able to refer to settlement discussions in unfair dismissal claims;
- that compromise agreements will be renamed 'settlement agreements';
- a binding shareholder vote on remuneration policies in quoted companies;
- allowing one judge to hear cases in the Employment Appeal Tribunal, rather than three;
- allowing administrative staff, known as 'legal officers', to hear certain cases, if all parties agree.
The proposals contained within ERR are a mixed bag. Many of them seem sensible, but there is a risk that they could cause more problems than they seek to resolve if they are not implemented carefully. However, it is by no means certain that all of these proposals will make their way onto the statute book, since the Bill has a long way to go before it becomes law.
For more information, please contact Laura Garner.
Stamp Duty Charities Relief: take care if a joint purchaser!
HM Revenue & Customs ("HMRC") has surprisingly won a recent case in the Upper Tax Tribunal relating to Charities Relief (Pollen Estate and Kings College London ("KCL") v Commr HMRC 2012 UKUT 277 (TCC)).
The case involved a joint purchase by KCL and one of its senior employees of a residential property in the proportions 46.3% and 53.7% respectively. Readers will be aware that SDLT Charities Relief applies to the acquisition of UK land by a charity where certain conditions are met, including that the property will be held for the charitable purposes. On this basis, as a charity, KCL considered that it could claim Charities Relief on the 46.3% it acquired. This seems an entirely reasonable conclusion, by HMRC disagreed – and more importantly so did the Upper Tribunal. The reasoning was that there was a single "land transaction" here and that, since only one of the joint purchasers was a charity, no relief was available at all.
What does this mean for a charity which plans to jointly acquire a property? The transaction should be examined carefully in order to ensure that Charities Relief is not lost. For example, a charity which acquires land (on its own), "the greater part" (51%) of which will be used for charitable purposes, may still be able to claim Charities Relief in full, albeit that any subsequent disposal to a non-charity will lead to a claw-back of the appropriate proportion of the relief claimed. So a subsequent sale of 20% of the land would generally result in losing 20% of the SDLT relief. This contrasts with a joint 80:20 purchase upfront between the charity and non-charity, on which no relief would be available after KCL.
VAT: Listed Buildings
Alterations to listed buildings will cease to be eligible for "zero-rating" from 1 October 2012, and HMRC have published further guidance on the new rules. Anyone carrying out alterations to listed buildings should consider the new rules carefully, as there are concessions for planning consents applied for before 21 March 2012 or where written contracts were entered into before this date. In terms of mitigating the effect of the new rules, consideration should always be given to whether any work is creating an "annexe", which may in certain circumstances still qualify for zero-rating. Further, it should be noted that a £30m fund has been made available for alterations to listed churches to alleviate the effect of the new rules.
For more information, please contact Jonathan Legg.
Reputation Protection Law
Controlling the Risks of Social Media - Words of Encouragement to the Charity Sector
Charities are increasingly embracing social media; taking advantage of new platforms on which to engage with their supporters and to enhance their communication and fundraising campaigns. Many remain cautious, however; scared off by the risks which social media, in its various guises, could potentially present to their well-earned reputations. Stories such as the comedian who claimed to have been “bullied” by a children’s charity online do not do much to allay concerns.
Social media - from Facebook to Twitter, and from LinkedIn to YouTube - provides unique and wide opportunities to participate in interactive discussions and to share information with constituents and supporters. Employees’ use of social media, for charity and for personal purposes, can pose grave risks, however, to charities’ confidential and proprietary information, and to their professional reputations. A single misguided Tweet from a charity's official account could lead to significant adverse publicity, and potentially to complaints to the Charity Commission.
To understand, address and minimise such risks, charities should effect and enforce comprehensive social media policies; tying employees’ use of social media into employment contracts, and ensuring that social media is used appropriately and effectively within wider communications and marketing initiatives. Careful thought should be given to whether charities monitor staff use of social media on charity IT equipment, and whether they might give guidance on employees’ personal use of social media, i.e. outside of their charitable work. Robust social media policies will identity who may speak on behalf of the charity, and the ways by which others should make clear that they speak in their own stead. Often employees benefit from specific training, to understand the appropriate and acceptable use of social media, and to ensure that any issues which may arise are addressed quickly and professionally, before a negative media story is generated.
As donors are increasingly finding and sharing information online and through social media, charities should be encouraged to engage. Taking proactive steps to mitigate the risks, charities’ use of social media can help significantly to advance fundraising and campaigning goals.
For more information on the topic, please contact Emma Woollcott.
Emma Woollcott will be hosting the next Charitable Forum, to be held on Thursday, 11th October. She will try to allay concerns arising from the use of social media in the charity sector, and will give tips on how charities can protect their most valuable asset – their reputation.
For more information on this event, please click here.
To register for the forum, please contact Colleen Noctor.
Fraudsters without morals
Charities continue to fight fraud and financial crime on two fronts: internally and externally. Fraud could take the form of dishonest officers, employees and agents stealing the charity's money or third parties setting up bogus schemes which elicit donations from the public at the expense of legitimate charities.
The National Fraud Authority revealed in its 2012 Annual Fraud Indicator that over £1 billion was lost to fraud in the voluntary sector. This represents around 2.5% of the total turnover of the sector. However, many frauds go undetected in this sector and there is concern about significant under- reporting. This means that the true impact of fraud on charities may be much greater then shown by the statistics.
A recent case involving an accountant, who admitted stealing more than ½ million pounds from a subsidiary of a hospital fundraising charity, serves as a stark reminder that fraudsters have no moral compass when choosing their victims. The lesson is clear: charities are vulnerable. It is vital to have financial controls, checks and balances and good governance in place to revert, detect and combat fraud.
Once a fraud has been committed it is important to act swiftly and decisively, especially to ensure that stolen monies (and the assets acquired with those funds) are not dissipated. Organisations must be careful not to put the charity's property, funds or reputation at risk. Decisions made within the first 48 hours of discovery of a fraud will make the difference between success and failure. Freezing assets and seizing evidence is absolutely critical to the effectiveness of a fraud investigation and the successful recovery of stolen funds.
For more information please contact Hugo Plowman.
Mishcon de Reya has a full programme of Charity Forum events for 2012. These regular round-table afternoon discussions address key issues of relevance to those in the charity sector. To find out more please contact Natasha Managarova or visit Mishcon Charitable on our website.
The next Mishcon Charitable Event is to be held on Thursday, 11th October at 4pm. The subject of the forum is 'Controlling the Risks of Social Media - Words of Encouragement to the Charity Sector'
In this session Emma Woollcott of Mishcon Private will try to allay concerns arising from the use of social media in the charity sector and will give tips on how you can protect your most valuable asset – your reputation.
For more information and to register for this forum please contact
Social Responsibility and Charitable Activities
Mishcon de Reya is committed to being a socially active and responsible business.
Mishcommunity is our Corporate Social Responsibility programme. It has been developed to formalise our commitment to give time, money and resources to good causes and to manage the social and environmental impact of our day-to-day activities. The programme gives everyone at the Firm the resources to use their creativity and entrepreneurial spirit to help those in need.
Here is a short summary of our activities for the past quarter.
Discretionary Fund: Beneficiaries from this quarter's discretionary fund have been: MDS UK Patient Support, Guide Dogs for the Blind, Crisis, World Bicycle Relief, British Heart Foundation, Thomas Coram Nursery, Best Beginnings, Christopher Place, The Rainbow Trust, The Trussell Trust, CDKL5 UK and Breakthrough Breast Cancer.
KIVA: We have made 1,300 loans since 2010 through Kiva, a micro-financing organisation financing loans to entrepreneurs in developing countries. Our loans have totaled over $72,000, of which over $53,000 has been repaid, which we have reinvested in Kiva. To view our loans to date please visit www.kiva.org.
If you would like to know more about our Mishcommunity, please click here.